Result Highlights

• 9M17 earnings was in-line but NPAT beat our expectation as net margin rose to 39.5%.
• Laggard 3Q17 overall performance after sizeable revenue recognition from land plot sales in 2Q17.
• Marketing sales strategy shift as company to focus on cheaper housing in 4Q17.

In-line 9M17 results as margins improved

BSDE recorded solid earnings of IDR 5.83 tn (+36.2% YoY) in 9M17 with bottom line jumped by 99.69% to IDR 2.3 tn (vs. IDR 1.158 tn in 9M16). Revenue is mainly in-line with our estimate with 76.01% run-rate but NPAT beat ours and consensus’ expectation with 95.54% and 90.02% run-rate, respectively. Furthermore, net margin improved significantly to 39.5% (from 27.2% in 9M16). We believe this is due to lower interest expense after loan restructuring and an increase in operating efficiency that augmented operating profit growth by 49.96% YoY. In terms of QoQ achievement, BSDE recorded NPAT of IDR 292 bn (-77.1% YoY) on 3Q17 and total revenue of IDR 1.6 tn (-34.4% YoY). In our view, laggard performance in 3Q17 was to be expected after sizeable revenue recognition from land plot sales in 2Q17.

Balance sheet mildly affected by one-off transaction

As of 9M17, BSDE held IDR 4.5tn in cash and equivalents, down 15.1% from last quarter. This is likely caused by the premium BSDE paid for purchasing Menara Sinarmas MSIG on September 12^th, 2017. The purchase value was USD 107.5 mn (IDR 1.4 tn), with a premium around USD 15 mn (IDR 200 bn). Due to this reason, Its net debt position stood at IDR 2.7 tn, rose 8.27% from last quarter. The decrease in cash and equivalents has affected the net gearing level which increased to 10.2% vs. 9.6% in 2Q17.

Balance sheet mildly affected by one-off transaction

9 months 2017 pre-sales achieved 66% of annual target which set on IDR 7.2 tn while residential pre-sales made amounting to IDR 1.4 tn has contributed 29% of full year target. The contribution from residential sales dropped drastically compared to last year of 63%. BSDE has launched a program called “price lock” in October 2017, which involves 20% discount for cash payment for several selected properties that came from existing inventories. We expect the impact would be mild as only 7% of its customers opt to pay by cash while the rest prefer mortgage or in-house instalments.

Rating and Valuation

We maintain our BUY recommendation and 12 month forward target price of IDR 2,110. Our RNAV-based target price implies a 2018F P/E of 14.1x and reflects a 5% perpetual growth rate, 7.62% market risk premium, 6.82% risk-free rate, 1.24 beta, and 15.1% WACC. BSDE is currently trading at an attractive valuation of 10.3x 2018F P/E (1 Standard deviation below 3-year average) and 55.2% discount to RNAV.